Consider the situation for Janice who reaches her State pension age in a couple of months. She is also retiring from her day job as a receptionist for a small engineering company. Janice left school after her ‘A’ levels aged 18 and can recall having at least 10 jobs before this one. Some she has enjoyed, others kept the wolf from the door during her many life transitions. When asked why is she is retiring now, she says, “Because I’ve reached retirement age.”
She is however going to continue her part-time job working behind the bar on Friday and Saturday evenings at her local pub. She does not look upon this as work but as an opportunity to be paid to socialise. Although currently single, she has twice divorced but has not given up on marrying again. Statistically she has a good chance. Marriage among the over 60s is on the increase, but few of those who marry in retirement have not been married before. Her flat is worth £250,000 but she has £60,000 outstanding on her mortgage with no idea how she will repay it.
When it comes to savings and investments, you name it and she has got it. Unfortunately, although she has many savings and investment plans they are all small amounts. She has always believed in putting money aside more for the benefit of her two children – now aged 37 and 34 – but her circumstances often change quickly. Her portfolio, in her words, consists of:
- A few shares from privatisation, demutualisations and the SAYE scheme one of her employers operated.
- Insurance bonds in which cash from her divorce settlements was invested.
- A couple of stocks and shares ISAs that were bought off the page from newspaper advertisements when she was in well paid employment.
- A ‘large’ pension fund, worth £25,000 from a pension credit resulting from her last divorce.
- She also has a ‘small’ defined benefit pension of £1,000 a year.
She has no idea whether she has any other pensions. This is doubtful as most of her employers were very small companies. Her current day job pays £19,000 a year. Her evening job pays £2,500 a year but on a ‘good’ evening much of what she earns is spent before she leaves for home.
So, where does one begin when advising Janice? There are plenty of questions. How much will it cost to create a financial retirement income plan for her and how much would Janice have to pay from her limited resources to have it managed for her? What should be her priority? Pay off the mortgage or ensure she has sufficient income to service it?
Would it be possible to continue to work longer, with the objective of paying off more of her mortgage? Would this be acceptable to her? Could she downsize to a smaller property to pay off her mortgage? If she downsized would she be able to put up her children and grandchildren when they stay over?
Currently, where does she go for the advice she needs? Probably her friends in the pub? Would a mortgage adviser be better? Would they find her a better mortgage deal? Perhaps equity release should be considered? What would the mortgage adviser say about the use of her savings and investments though? What are they allowed to say? Would they raise the questions of continuing to work, or the possibility of downsizing?
Alternatively, a pension and investment adviser would not usually be able to give advice about mortgages and the merits of using equity release or otherwise. They may however be interested in investing the proceeds of downsizing.
You can create different fact finds for Janice and then consider the different strategies they could generate. More importantly what are the traps Janice could unwittingly fall into if she does not talk to the correct advisers?
Okay, so Janice has been created for the purposes of this article; however even though I’ve not met her in person, the chances are she does exist. She is a combination of a number of people I have come across recently and her situation will be common to many people living throughout the UK today.
The big problem for many of these people – and Janice – is that she is (on the one hand) not poor enough to be considered vulnerable, but (on the other) she has a complicated situation, which requires significant levels of advice across any number of product areas. Does she have the money to pay for this advice? She is not a ‘traditional financial adviser client’ who are likely to be much wealthier, will have paid for advice over many years, and be in a far ‘simpler’ position at this stage of their lives.
This is a big issue for the market because unless we can find a way to provide advice to people such as Janice, then I suspect we are going to have very large numbers of people who are unprepared for retirement, and unable to maintain their standard of living throughout their retirement years. Relying on friends – down the pub or otherwise – cannot be good for anyone and until we find a way to breach the retirement advice gap then people like Janice are likely to make bad decisions and end up suffering for it.
Bob Champion is chairman of the Later Life Academy (LLA)